Topic: Employment Law
We all know that poaching employees and executives from other companies is common in the corporate context, but can the company trying to poach the employee be held liable? What if the person “poaching” the employees is from within the company (i.e. a high level associate who takes a large number of lower employees with him and opens a competing practice – “the mole” scenario)? Can the employee be held liable in such scenarios? Numerous cases address these issues, but I will focus my discussion on “the mole” scenario (see below).
Caption: Flickr – All rights reserved by votfnet
The “mole” scenario was dealt with explicitly in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al. (2008 SCC 54). I will not review the case as a whole, but essentially a higher level/supervising employee left his company with several lower level investment advisers at the advice (and planning) of a competing company. The result was that the RBC Branch in question collapsed… but the subsequent cause of action is where this coup d’état evolved from legally acceptable (but frowned upon) poaching practices to a violation of the good faith obligation on the employee. The test the Supreme Court used in this case was one of foreseeability (Hadley v. Baxendale – classic “Remoteness Test”). In the most basic sense, the foreseeability question asks – if you asked the people involved (at the time they were entering into the contract) what kind of damages would be expected if “X” event occurred, and they said that the entire branch would collapse, then the result was “foreseeable.”
Basically, what we can take from this is a lesson that – “directors and senior officers of a corporation have a fiduciary duty [i.e. good faith] to the corporation which include the observance of a strict ethic of the duty of loyalty, good faith, and avoidance of conflicts of duty and self-interest.” This is all great and dandy, but what about the competing company who organized the entire thing? Is it “fair” to hold just the higher level employee liable? Well the answer to these questions is complex – but the RBC Dominion case illustrates that the competing company might be held liable as a third party for inducing the initial high level employee for leaving (as the trial level judge did in the RBC Dominon case). (note: I say “might” because the trial level decision was overturned as to this aspect)
Balancing the Scales – “My Thoughts”
There really is no “right way” or hard-and-fast rule to poach an employee… sorry if I got your hopes up. If the ethical issues and legal/fiduciary obligations aren’t enough to dissuade a company from poaching an employee, then (just to be safe) companies should make sure that those specific employees don’t have any fiduciary obligations (or other such clauses – such as non-compete provisions) in their respective employment contracts… or they could always just hire their own employees… just a thought.
Note: The RBC Dominion Case dealt with multiple other issues, including Restrictive Covenants and such – these were not addressed and the above is simply a basic review of the case law in this area. The above may not be applicable in all cases.
Disclaimer: Nothing on this website is meant to be taken as legal advice in any way, shape or form. I am not authorized to provide legal advice to anyone. If you require legal advice, I would recommend retaining counsel. All views expressed on this website are my own.
Stay tuned for more at my BLAWG at http://www.paulblawg.com and follow me on Twitter @PaulG_Law
Paul Blawg © 2014. All Rights Reserved
Paul Blawg 